Hostess Going Out of Business, CEO Blames Union Strike

Hostess, the makers of Twinkies, Ding Dongs and Wonder Bread, is going out of business after striking workers failed to heed a Thursday deadline to return to work, the company said.

“We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike,” Hostess CEO Gregory F. Rayburn said in announcing that the firm had filed a motion with the U.S. Bankruptcy Court to shutter its business. “Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders.”

Hostess Brands Inc. had earlier warned employees that it would file to unwind its business and sell off assets if plant operations didn't return to normal levels by 5 p.m. Thursday. In announcing its decision, Hostess said its wind down would mean the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores in the United States.

Hostess suspended bakery operations at all its factories and said its stores will remain open for several days to sell already-baked products.

The Irving, Texas-based company had already reached a contract agreement with its largest union, the International Brotherhood of Teamsters. But thousands of members in its second-biggest union went on strike late last week after rejecting in September a contract offer that cut wages and benefits. Officials for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union say the company stopped contributing to workers' pensions last year.

NBC's Savannah Guthrie read a statement on "Today" from the bakers' union that said: “Despite Greg Rayburn’s insulting and disingenuous statements of the last several months, the truth is that Hostess workers and the union have absolutely no responsibility for the failure of this company. That responsibility rests squarely on the shoulders of the company’s decision makers.”

Rayburn responded that he had been “pretty straightforward in all the town hall meetings I’ve done at our plants to say that in this situation I think there is blame that goes around for everyone.”

He denied that the decision to shut down could be a last ditch negotiation tactic to get the union back to the table.

“It’s over,” he said. “This is it.”

Rayburn, who first joined Hostess earlier this year as a restructuring expert, had earlier said that many workers crossed picket lines this week to go back to work despite warnings by union leadership that they'd be fined.

"The problem is we don't have enough crossing those lines to maintain normal production," Rayburn told Fox Business.

Hostess said that production at about a dozen of the company's 33 plants had been seriously affected by the strike. Three plants were closed earlier this week.

The privately held company filed for Chapter 11 protection in January, its second trip through bankruptcy court in less than a decade. The company cited increasing pension and medical costs for employees as one of the drivers behind its latest filing. Hostess had argued that workers must make concessions for it to exit bankruptcy and improve its financial position.

The company, founded in 1930, was fighting battles beyond labor costs, however. Competition is increasing in the snack space and Americans are increasingly conscious about healthy eating. Hostess also makes Dolly Madison, Drake's and Nature's Pride snacks.

If the motion is granted, Hostess would begin closing operations as early as Tuesday.

"Most employees who lose their jobs should be eligible for government-provided unemployment benefits," Hostess said.

Tags:

Sure. Of course they should have (even though have no idea what his compensation is, do you?). Then what? Have you looked at the financial statements? What course of action do you think could be taken to keep 18,000 people employed at a company rapidly losing market share and becoming increasingly unlikely to stay current on its loans? The only people who have seen their finances are the Teamsters, and they advised the bakers union to at the very least, hold a secret ballot vote on whether to go back to work or not, in addition to warning them that the company was in tremendously bad shape.

"Last July, the court documents said, the compensation committee of Hostess's board approved an increase in then-chief executive Brian Driscoll's salary from to $2.55 million from around $750,000. The company had hired restructuring lawyers in March 2011, the creditors said, and filed for bankruptcy protection on Jan. 11."

So they call for an 8% cut to workers' wages, but hey, the CEO's salary gets doubled. Their priorities were skewed, and as usual, the workers are the ones who get fucked over.

Again, his salary should be cut. Then...what exactly? Based on the information available and the numbers provided, after the executive compensation is cut, do you think the company is really in any better shape than it was previously with declining business and not being able to meet loan obligations?

Based on the size of the loan, a rapidly deteriorating business, input costs, etc. it seems incredibly unlikely that cutting the compensation of a few executives would've made a difference in the fate of the company. I agree that the pay of management should be cut, more than the delivery truck drivers, the factory workers, etc. I'm just trying to get a sense of what people think would've been best for the continued operation of the company. If they reduced the salary of the executives and kept everything else untouched, do you think that's enough based on what you know about the company? It doesn't seem like it to me.

What would've been best for the continued operation of the company would have been for management to have any sense of what the hell they were doing when the company filed for bankruptcy in 2004. The workers made huge concessions then to the tune of saving the company $100+ million, which was supposed to go toward revitalizing the brand and (surprise!) did not. As mentioned in previous comments, executives got bonuses and raises and did fuck-all for the company. It's not the first time and it won't be the last that this has happened.

So yeah, actually, I think spending all the money that the executives awarded themselves on actually investing in the company could have potentially saved it. Handing over the business to someone who actually A) had a sense of what to do with it and B) had any actual intention of saving it in the first place would have done wonders, too.

You said you were "dumbfounded" by some of the reactions in this post, but based on the company's history, I'd say they're pretty justified.

At this late date, the top execs giving up their raises wouldn't do jack diddly as they are too far in the hole.

But had they done the right thing back in 2004, the company might have been in better shape now and never have gotten to this point. Just proves that top management really had no clue what the hell they were doing.

Really freaking bitter right now because the company I work for is in the process of being driven into the ground. The former CEO was fired in July and the new CEO seems to be doing much of the same thing the old one did. And they just announced no merit raises next year and a suspension of a 401K match among other things.

"Last July, the court documents said, the compensation committee of Hostess's board approved an increase in then-chief executive Brian Driscoll's salary from to $2.55 million from around $750,000. The company had hired restructuring lawyers in March 2011, the creditors said, and filed for bankruptcy protection on Jan. 11."

"BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256."

Like I've stated above, executive compensation should be cut first, more so than any other group working at a company. They know of nine executives that received outrageous pay raises. The compensation structure more than likely drops off drastically like any other company of its kind outside of the top management. I'm just saying that if you look at their obligations to the pensions (linked to in the link you provided from Business Insider), other liabilities, and the fact that their business sucks, no amount of compensation cuts at the top was going to do much to save this company. That is all I'm saying.

Do you know why executives make huge salaries? Because they're supposed to run the business and make it profitable. Competent management could have done that. These people weren't competent; they were just crooks.

And what I'm saying is a) yes, as a matter of fact I do know how much the CEO was making, contrary to your accusation to the contrary, and b) blaming the unions for the situation is completely wrong. The company got to a point where there was no way to save it, and it got there because of the actions of management, not the unions.